Tackling climate change the economic way

04-07-2016 | Interview

Helen Mountford is the Director of Economics at the World Resources Institute and the Program Director for its New Climate Economy initiative, which provides independent evidence on the relationship between actions which can strengthen economic performance and reduce the risk of dangerous climate change. In this interview she outlines how she believes sustainable investment works best in combination with government policies.

How does your work at the New Climate Economy initiative work with investors in trying to prevent damaging climate change?

The New Climate Economy helps make the business and investment case for climate action. To meet development goals, we must approximately double the amount invested in global infrastructure by 2030. Our work shows it would not cost much more to make those investment choices low-carbon, and we are helping to identify the financing opportunities for investors.

Do you think sustainability investing can make a real difference, or should the focus remain on tackling government policies at source?

Sustainable investment can make a real difference as a standalone effort, but it works best in combination with government policies. Targeted public financing interventions and key policy changes – like phasing out the USD 650 billion spent on fossil fuel subsidies globally each year – can make it more attractive for the private sector to invest sustainably. When the public sector shifts its infrastructure spending into the low-carbon economy, it will encourage and leverage the private sector to move its trillions.

In which areas can we tackle climate change while promoting economic growth?

By improving efficiency, investing in infrastructure and stimulating innovation across three key economic sectors – cities, land use, and energy – governments and businesses can deliver strong growth with lower emissions. Compact, connected, and coordinated cities are a USD 17 trillion economic opportunity by 2050, and can lower carbon emissions, air pollution, and traffic congestion. Reducing deforestation and restoring degraded land can raise agricultural output and rural incomes while reducing emissions and increasing resilience to climate change. Clean energy can create jobs and improve public health.

Are fossil fuels doomed, or do cheap coal and oil remain too irresistible for governments given the current higher cost of renewable alternatives?

Renewables are increasingly cost-competitive in many regions, and in future may be the clear choice on economic grounds alone. In Mexico, the first long-term energy auction yielded tariffs as low as 3.5 cents per Kwh in March 2016.The effect of recent low oil prices on investments have also shown the economic risks of their price volatility. And a further USD 1.1 trillion of energy-sector assets are at risk of stranding if financial markets fail to anticipate the transition to low-carbon energy. The signals are clear, and the smart money is shifting.

Would raising the price for carbon emissions (currently less than 6 euros) make a difference? If so, how could this be achieved on a global basis?

In fact, carbon prices are already spreading around the world – currently in 40 countries and over 23 sub-national cities, provinces or states, and with internal carbon prices used by over 435 major companies for their investment decisions. The evidence shows that in many cases they have been effective in reducing emissions, while shifting economic activity to innovative and low-carbon sectors to spur growth, while also raising fiscal revenues for governments to offset reductions in other taxes. Now is the time to introduce or strengthen carbon prices, as oil prices are still relatively low. International cooperation through groups like the G20 and the Carbon Pricing Leadership Coalition can help overcome competitiveness concerns.

Is it difficult persuading emerging markets to adopt more sustainable economic policies given their sometimes more pressing problems of feeding and finding jobs for large populations, etc?

Emerging countries are increasingly seeing their climate and economic development agendas as inextricably linked, and thus are showing some of the most promising leadership. The negative side effects of our current models of development are making many look for a more sustainable path. For example, air pollution associated with fossil fuels kills millions each year and costs as much as 7% of GDP in India and 10% of GDP in China. Both these countries see a shift to renewable energy as the way forward for their own economic and social goals.

How does the Paris Agreement change the landscape for sustainable investing?

The Paris Agreement delivered a clear and credible signal to the world that we are moving to a low-carbon economy. The Agreement’s long-term goal and five-year cycles to review and increase ambition will give investors the security and confidence that climate action will continue to progress. The smart money is no longer going into fossil fuels but into cleaner energy, smarter cities and more sustainable land use.

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